Tk 1100 crore bailout fund

ICB, 4 SOBs agree to save ailing Farmers Bank

Experts oppose the move: Public money put at risk

The Investment Corporation of Bangladesh (ICB) and the four state-owned banks have decided to inject Tk 1100 crore bailout fund to cash strapped Farmers Bank in line with a government plan to save the falling private bank founded by Awami League lawmaker and former Home Minister Dr. Mohiuddin Khan Alamgir. These public sector financial institutions came up with the decision at a meeting convened by the Bangladesh Bank (BB) on Tuesday.Governor Dr Fazle Kabir presided over the meeting held at the BB's headquarters in the capital.Chairmen and Chief Executive Officers of the Investment Corporation of Bangladesh and four state-owned banks (Sonali, Janata, Agrani and Rupali) attended the meeting. Journalists were prevented from entering the central bank's headquarters until the meeting ended at 3:00pm. "The investment issues were discussed at the meeting. The ICB and the respective state-owned banks have placed their proposals in this regard. All the financial institutions, however, unanimously decided to invest into the bank to sustain its operation," ICB Chairman Dr. Mojib Uddin Ahmed told The New Nation. Earlier, the Board of Farmers Bank decided to raise the bank's capital to Tk 1100 crore from Tk 400 crore by offloading shares through private placement. But it didn't get the expected investors. Under these circumstances, the central bank advised the state-owned banks to invest into the scam-hit bank as part of a bailout package. "We convened the meeting to discuss the forms and ways of bailout package as outlined to save this private bank," a senior BB official told The New Nation on condition of anonymity.He said the state-owned lenders have agreed in principal to invest into the bank by buying shares or other means.The bailout fund would help bolster capital base of the cash strapped bank amounting to Tk 1,500 crore from Tk 400 crore. It will also help sustain the bank's operation and pay off depositors. Earlier, Finance Minister AMA Muhith said that the government has moved with a plan to save the Farmers Bank. "The government can't allow a bank to fail. Bank failure is a horrible thing for any country," he said.Banking analysts opposed the government move to inject bailout fund to ailing Farmers Bank saying the move would put the public money at risk further as the bailout package involving state-owned financial institutions. "It would be a 'pervasive incentive' for the falling bank. The government's move would be regarded as a bad example in the country's financial sector," former BB governor Dr Salehuddin Ahmed told The New Nation.He said the bank got license under the government's political consideration. So, a flaw was prevailing at the very inception of the bank badly affecting its corporate governance. "The governance problem later reflected on the lending practices of the bank, which was already hamstrung by loan scams and defaulted loans," he said, adding, "The bailout fund without reshaping the flaw would not bring any good for the bank rather put the public money at risk." Opposing the government's move, Dr Salehuddin Ahmed said, "It is a rare instance to rescue a private bank through selling shares to public financial institutions. No question would be raised if the government moves whether rescuing public entitles with bailout funds." "The government should stop providing fund risking of citizens' money to rescue a private bank. The bank directors should be given the responsibility to raise the bank's capital and recover the defaulted loans to make up its liquidity crisis," he added.Terming the government's move 'illogical', Bangladesh Institute of Bank Management Director General Toufic Ahmad Choudhury said that Farmers Bank should be shut down because of the unprecedented irregularities that had taken place in it. "I see no moral and ethical ground to extend the bailout package to save the falling bank," said former BB Deputy Governor Dr Khandoker Ibrahim Khaled.He said the way the government is going to inject fresh fund would not be effective unless the errant directors are removed from the bank. The government should take other options to save the bank. "The current deplorable condition of the bank has created panic among the depositors who rushed for taking out their money in the bank. But it is failing to pay off the depositors sending a wrong signal to the financial sector," he said, adding, "The government should take punitive measures against those responsible for pushing the bank on the brink of collapse."